Archive for August, 2008

I thought that I would talk about an exercise I conducted on my first day teaching Securities Regulation.

We ran an auction for a “gift certificate for dinner for two, plus drinks, at a local restaurant,” the proceeds of which would be donated to the American Cancer Society. I informed them, by way of a disclosure statement via email, that I informally asked some friends on the faculty what they would bid based on the same limited information that the students received. I told the students that the result of that informal survey was an average bid of $93.50, and I mentioned that if the students obtained the item for lower than its value they might even sell it for a profit. My disclosure email was riddled with the sort of dry and equivocal statements one might find in a registration statement, and my first day sales pitch was a little more puffed up.

The result: The winning bid was $85 for a $10 gift certificate to McDonald’s. I think it got their attention, which was a good intro to my overview of what we’ll cover in the class.

Who else wants to share an effective classroom experiment or exercise? (Russ Coff has also suggested some here.)

Thanks to my dedicated assistants Per Bylund and Mario Mondelli we now have an electronic copy of Bert Hoselitz’s hard-to-find 1951 essay, “The Early History of Entrepreneurial Theory” (Explorations in Entrepreneurial History, volme 3, pp. 193-220) and are happy to share it. This is one of the best surveys of the concept of entrepreneurship in pre-classical economics (but also including J. B. Say). (Hébert and Link (1988) think Hoselitz draws too sharp a line between Cantillon and Say.)

Maybe you’re going to a dinner party this weekend, and maybe you’re worrying that the conversation with the person (of the opposite sex) seated next to you is going to dry up. If so, O&M offers a solution. Read the paper whose abstract appears below beforehand, and just as conversation is starting to cool down, give a quick summary of it. That should bring the heat back up.

We examine why developed societies are monogamous while rich men throughout history have typically practiced polygyny. Wealth inequality naturally produces multiple wives for rich men in a standard model of the marriage market. However, we demonstrate that higher female inequality in the marriage market reduces polygyny. Moreover, we show that female inequality increases in the process of development as women are valued more for the quality of their children than for the quantity. Consequently, male inequality generates inequality in the number of wives per man in traditional societies, but manifests itself as inequality in the quality of wives in developed societies.

Another potential use of the paper is to give it to your spouse if he or she complaints too much. I.e. make the point that if you are low quality, then he or she is likely to be low quality too, so he or she would be better off praising you.

The full reference is: Gould, Eric D., Omer Moav, and Avi Simhon. 2008. “The Mystery of Monogamy,” American Economic Review, 98(1): 333–57. The paper can be found here.

The March 2008 issue of the Journal of the History of Economic Thought features “On Robinson, Coase, and ‘The Nature of the Firm'” by Lowell Jacobsen. Robinson is E. A. G. Robinson, the Cambridge economist and longtime editor of the Economic Journal, now known mainly as the husband of Joan Robinson. Coase was trained by Arnold Plant and has written much about Plant’s influence. Jacobsen argues that Coase was also influenced significantly by Robinson, an influence that has not been widely appreciated. Here’s a bit from the conclusion:

Robinson’s influence on Coase’s writing of ‘‘The Nature of the Firm’’ through his The Structure of Competitive Industry is both obvious and significant. This is understandable, as Robinson and Coase both embraced and looked to extend the Marshallian tradition with these noted works.19 They sought to directly engage the real world of business as they were keenly interested in how firms actually behave, and why. They pursued answers to very fundamental questions: Why do firms exist? and, To what size? In addition, the study of firms and their industries requires a variety of considerations if effective decision-making by the firms’ managers is to be properly understood. In Cairncross’ fine biography of Robinson, he noted the brilliance of Robinson was his ability ‘‘to look at problems from different angles, against an historical background, taking in technology, organisational considerations, political feasibility’’ (Cairncross 1993, p. 164). Much the same could be said about Coase. . . .

[Robinson and Coase] were both interested in applying simple, yet compelling, economic concepts and theory such as scale economies, substitution at the margin and, of course, transaction costs. Further, it was important for them that economic analysis be grounded on realistic assumptions; theory that depended on fabricated assumptions to ensure tractability and even elegance should be largely avoided. Moreover, mathematics should not be the sine qua non of economic theory. Unfortunately, formalism and a priori theorizing emerged in the 1930s (given such influences as Robbins, Pigou, and even Joan Robinson) to dominate, if not define, mainstream economics, including the treatment of the firm. As a result, Coase and Robinson arguably became ‘‘outsiders’’ as Medema (1994), in his equally fine biography, concludes about Coase.

The paper is free, for now at least, on the Cambridge Journals site, so grab it while you can.

I just learned that Barry Smith’s influential book, Austrian Philosophy: The Legacy of Franz Brentano (Open Court, 1994), is available online in its entirety. This is not a book on the Vienna School or logical positivism or Wittgenstein, but on the general philosophical climate in Austria during the late nineteenth and early twentieth centuries, with special emphasis on the influence of this climate on Carl Menger’s economics. Menger, Smith has argued, was steeped in the Catholic, Aristotelian tradition of classical Austrian philosophy and this helps explain how his “causal-realist” approach differs from its Walrasian and Jevonsian counterparts.